Top Alt Strategies to Weather a Recession Storm

Remember when recessions were just a thing of the past, a ghost story told by economists to scare us into saving? Well, the ghost is back, and it’s real. But before you start hoarding canned goods and building a bunker, let’s talk strategy. Not just any strategy, but alternative strategies that could be your lifeline in these turbulent times. 

What’s a Recession?

According to the National Bureau of Economic Research (NBER), a recession is “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.” A recession can last anywhere from a few months to several years. Since World War II, the average recession is 10 months. The longest recession since WWII was the Great Recession, which lasted from December 2007 – June 2009. When a recession “ends,” most people still feel its effects for months or even years (e.g., high unemployment rates).

Recessions impact anyone and everyone. But according to the Small Business Administration (SBA), entrepreneurs are the most likely to bear the brunt of periods of economic decline. So, how do you navigate this chaos? How do you make informed decisions when the world seems to be spiraling out of control? The answer lies in alternative strategies.

Cutting Costs

Running a business during a recession is difficult. It requires you and your employees to implement a mix of strategies and make adjustments specific to your business. One universal strategy for surviving a recession? Cutting costs. A business needs profits to operate. To make a profit, you need to have higher incoming money than outgoing money. But during a recession, consumers spend less. And if your sales decrease, your profits will, too—unless you cut back on spending.

Cutting costs to prepare for a recession isn’t new. Do a quick Google search, and you’ll see it’s one of the top recommended strategies for surviving a recession. In fact, 58% of business owners have already been looking for areas to cut expenses. There are four main ways to cut costs: returning inventory to vendors, switching to more affordable payroll software, canceling a business magazine subscription, and renegotiating your commercial lease.

Doing Business Differently

Like anything in business, a recession is a change (albeit a big change!). And when things change, your response is what matters most. The Small Business Administration challenges small businesses to think about ways they can do business differently during economic downturns. This can include everything from your company’s processes to its marketing efforts to how you interact with other businesses. For example, you may find that collaborating with another business benefits both of you during a recession.

Be willing to go over everything in your business with a fine-tooth comb. Consider doing an internal audit to see where you can make changes and improvements. If you want to do business “differently” during a recession, you need to first do your research. Consider what your customers’ changing needs are (e.g., saving money) and stay up-to-date on what’s trending. Brainstorm ways you can best serve your customers that may be different than what you’ve done traditionally or what your competitors are doing.

Maximizing Efficiency

When learning how to survive a recession, you may pinpoint ways to improve efficiency. Most business owners look for ways to cut costs in business. But your time (and your employees’ time) is money, too. You also need to look for ways to maximize your time so you can spend time where it counts. You don’t want your team spending too much time on tasks that aren’t going to result in much for your business.

Always keep your return on investment (ROI) at the forefront of your mind. To increase efficiency in your business, you may ask yourself questions like: What tasks are taking up too much time? What tasks can be automated? What tasks can be outsourced? What tasks can be eliminated?

Building a Cash Reserve

Do you have an emergency fund for your business, known as a cash reserve? A cash reserve can help you meet short-term financial needs and help you avoid taking on new debt when money is tight. During a recession, a cash reserve is a lifeline for many businesses. When sales decrease, your cash reserve can help you cover expenses and employee paychecks.

Build your business’s cash reserve by setting aside 5% – 10% of your income. Ideally, your cash reserve would be able to cover 6 – 12 months of operating expenses. To accrue more interest on your cash reserve, you might consider using an online savings account or certificate of deposit (CD) with a high-interest rate. But if you use a CD, you can’t touch your cash reserve for a set period of time. This can be risky if you suddenly need to access your funds.

Avoiding New Debt

It may be tempting to take out new lines of credit or loans to help your business manage periods of low cash flow. But, doing this can hurt your business. Most experts advise against seeking additional credit during economic downturns. If cash is tight, first look for ways to cut costs, increase sales, and work with vendors and lenders before taking on more debt.

Always keep your debts in check. The Harvard Business Review found that companies with high levels of debt are particularly vulnerable during recessions due to interest and principal payments.

Thriving in a Recession

A recession is nothing to scoff at—even if the media has been talking about it for nearly a year. By planning first (and panicking second), you can ensure your business is prepared for the worst. When you hear “recession,” your focus might be on surviving. But in many ways, a recession can provide a unique opportunity to rise above the competition and develop deeper customer relationships. With the right plan and willingness to adapt, you can go beyond learning how to survive a recession and focus on thriving.